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Economic Collapse Is Erupting All Over The Planet As Global Leaders Begin To Panic

Earth Ready To Explode - Public DomainMainstream news outlets are already starting to use the phrase “economic collapse” to describe what is going on in some areas of our world right now.  For many Americans this may seem a bit strange, but the truth is that the worldwide economic slowdown that began during the second half of last year is starting to get a lot worse.  In this article, we are going to examine evidence of this from South America, Europe, Asia and North America.  Once we are done, it should be obvious that there is absolutely no reason to be optimistic about the direction of the global economy right now.  The warnings of so many prominent experts are now becoming a reality, and what we have witnessed so far are just the early chapters of a crushing economic crisis that will affect every man, woman and child in the entire world.

Let’s start with Brazil.  It has the 7th largest economy on the entire planet, and it is already enduring its worst recession in 25 years.  In fact, at the end of last year Goldman Sachs said that what was going on down there was actually a “depression“.

But now the crisis in Brazil has escalated significantly.

I want to share with you an excerpt from a recent article entitled “Brazil: Economic collapse worse than feared“.  I know, that title sounds like it comes directly from The Economic Collapse Blog, but I didn’t write it.

It actually comes from CNN

Amid political chaos, Brazil’s economic collapse is worse than its government once believed.

In the midst of rising calls to impeach President Dilma Rousseff, Brazil’s central bank announced Thursday that it now expects the country’s economy to shrink 3.5% this year.

That’s worse than the central bank’s previous estimate for a 1.9% contraction. The darker forecast matches what the International Monetary Fund projected for Brazil — Latin America’s largest country — and what many independent economists have suspected.

It is one thing for Michael Snyder to tell you that Brazil is in the midst of “economic collapse”, but it is another thing entirely for CNN to say it.

And of course I have been warning about the crisis down in Brazil for quite some time now.  For much more on this, please see my previous article entitled “The Economic Collapse Of South America Is Well Underway“.

Meanwhile, things are actually much worse in Venezuela than they are in Brazil.  Food and basic supplies are in short supply, the inflation rate has hit 720 percent, and crime is completely out of control.

The following is from an article in the Independent entitled “Venezuela is on the brink of complete economic collapse“…

The only question now is whether Venezuela’s government or economy will completely collapse first.

The key word there is “completely.” Both are well into their death throes. Indeed, Venezuela’s ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it’s hard to see that getting any better for them any time soon — or ever.

Incumbents, after all, don’t tend to do too well when, according to the International Monetary Fund, their economy shrinks 10 percent one year, an additional 6 percent the next, and inflation explodes to 720 percent. It’s no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.

Once again we see a very respected mainstream publication using the phrase “economic collapse” to describe what is happening in South America.

You can find some stunning video of the “economic Armageddon” that is taking place in Venezuela right here.  I would encourage you to watch that video, because what is happening down there will eventually be happening here.

Meanwhile, over in Europe the collapse of the Italian banking system has entered a disturbing new chapter.  Italy’s finance minister has called a meeting in Rome for Monday that will be focusing on a “last resort” bailout plan for the troubled banks…

Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan.

Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks, Monte dei Paschi di Siena, from contagion, according to people involved in the talks.

Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. Lenders’ profitability has been hit by a crippling three-year recession.

As Italy descends into financial chaos, the rest of the continent better be paying attention.

Do you remember how hard it was for the rest of Europe to rescue Greece?

Well, Greece has the 44th largest economy on the planet.

Italy has the 8th.

It would be hard to overstate the seriousness of what is going on over in Europe, and it is not just Italy we are talking about.  All over the continent major banks are in deep trouble, and the chairman of France’s second largest  retail bank recently told reporters that “I am much more worried than I was in 2009“.

And there is very good reason for concern.  On Sunday, we learned that a major “bail-in” had just been announced for one of Austria’s most prominent banks.  The following comes from Zero Hedge

And then today, following a decision by the Austrian Banking Regulator, the Finanzmarktaufsicht or Financial Market Authority, Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG.

The highlights from the announcement:

Today, the Austrian Financial Market Authority (FMA) in its function as the resolution authority pursuant to the Bank Recovery and Resolution Act (BaSAG – Bundesgesetz über die Sanierung und Abwicklung von Banken) has issued the key features for the further steps for the resolution of HETA ASSET RESOLUTION AG. The most significant measures are:

  • a 100% bail-in for all subordinated liabilities,
  • a 53.98% bail-in, resulting in a 46.02% quota, for all eligible preferential liabilities,
  • the cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG,
  • as well as a harmonisation of the maturities of all eligible liabilities to 31.12.2023.

According to the current resolution plan for HETA, the wind-down process should be concluded by 2020, although the repayment of all claims as well as the legally binding conclusion of all currently outstanding legal disputes will realistically only be concluded by the end of 2023. Only at that point will it be possible to finally distribute the assets and to liquidate the company.

The dominoes are starting to fall in Europe, and I would expect even bigger announcements in the weeks and months to come.

Over in Asia, economic chaos is beginning to prevail as well.

In China, the stock market is already down more than 40 percent from the peak, Chinese exports were down 25.4 percent on a year over year basis in February, and Chinese economic numbers overall have not been this poor since the depths of the last global recession.

At the same time, the Japanese economy is really struggling right now.  As I wrote about the other day, Japanese GDP has shrunk for two out of the last three quarters, we just saw Japanese industrial production experience the biggest one month decline that we have witnessed since the tsunami of 2011, and business sentiment has fallen to a three year low.  The Nikkei has dropped by about 5,000 points from where it was last summer, and some analysts believe that Japanese markets “are being destroyed” due to massive intervention by the Bank of Japan.

Here in the United States, we haven’t been hit quite as hard as the rest of the world just yet, but there are lots of very disturbing warning signs all around us.

At the end of last week, we learned that it is being projected that U.S. GDP will have grown by just 0.1 or 0.2 percent during the first quarter of 2016.  And on Monday corporate earnings reporting season begins, and it is expected to be a very, very bad one.  The following comes from Business Insider

We are about to get confirmation that earnings growth for America’s biggest companies was negative in the first quarter, compared to the same period a year ago.

When aluminum giant Alcoa releases its results on Monday, it will mark the unofficial start of the heaviest reporting season for S&P 500 companies.

The final scoreboard is expected to show a 9.1% earnings drop for the quarter, according to FactSet senior earnings analyst John Butters.

If these projections turn out to be accurate, it will be the fourth quarter in a row of earnings declines.  This is something that we never see outside of a recession.

And for a whole bunch more numbers which indicate that the U.S. economy is in very serious trouble, please see my previous article entitled “19 Facts That Prove Things In America Are Worse Than They Were Six Months Ago“.

Of course I am just another voice in the crowd when it comes to predicting that the U.S. economy is headed for rough times.  For example, just check out what Societe Generale economist Albert Edwards is saying

A tidal wave is coming to the US economy, according to Albert Edwards, and when it crashes it’s going to throw the economy into recession.

…the profit recession facing American corporations is going to lead to a collapse in corporate credit.

“Despite risk assets enjoying a few weeks in the sun our fail-safe recession indicator has stopped flashing amber and turned to red”

He continued:

Whole economy profits never normally fall this deeply without a recession unfolding. And with the US corporate sector up to its eyes in debt, the one asset class to be avoided — even more so than the ridiculously overvalued equity market — is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default.

As you can see, it isn’t just one nation or one region of the world that we need to be concerned about.

Economic chaos is erupting literally all over the planet, and global leaders are starting to panic.

Unfortunately, they have had seven years to try to fix things since the last global recession, and they didn’t get the job done.  Anyone that believes that by some miracle they will be able to pull us out of the fire this time and that everything will somehow be okay is simply engaged in wishful thinking.

*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*

Business Debt Delinquencies Are Now Higher Than When Lehman Brothers Collapsed In 2008

Insolvent - Public DomainYou are about to see more very clear evidence that a new economic crisis has already begun.  During economic recoveries, business debt delinquencies generally fall, and during times of economic recession business debt delinquencies generally rise.  In fact, you will see below that business debt delinquencies shot up dramatically just prior to the last two recessions, and the exact same thing is happening again right now.  In 2008, business debt delinquencies increased at a very frightening pace just before Lehman Brothers collapsed, and this was a very clear sign that big trouble was ahead.  Unfortunately for us, in 2016 business debt delinquencies have already shot up above the level they were sitting at just before the collapse of Lehman Brothers, and every time debt delinquencies have ever gotten this high the U.S. economy has always fallen into recession.

In article after article, I have shown that key indicators for the U.S. economy started falling in either late 2014 or at some point during 2015.  Well, business debt delinquencies are another example of this phenomenon.  According to Wolf Richter, business debt delinquencies have shot up an astounding 137 percent since the fourth quarter of 2014…

Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail.

Between Q4 2014 and Q1 2016, delinquencies spiked 137% to $27.8 billion.

And we never see this kind of rise unless the U.S. economy is heading into a recession.  Here is more from Wolf Richter

Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:

Delinquencies-commercial-industrial-loans-2016-q1

Business loan delinquencies are a leading indicator of big economic trouble.

To me, this couldn’t be any clearer.

Just like the U.S. government and just like U.S. consumers, U.S. businesses are absolutely drowning in debt.

In fact, a report that was just released found that debt at U.S. companies has been growing at a pace that is 50 times faster than the rate that cash has been growing.

Just imagine what it would mean for your family if your debt was growing 50 times faster than your bank account.  Needless to say, this is an extremely troubling development

Well, American companies may just have a mountain’s worth of problems, according to a new report from Andrew Chang and David Tesher of S&P Global Ratings.

“At the same time, the imbalance between cash and debt outstanding we reported on last year has gotten even worse: Debt outstanding increased 50x that of cash in 2015,” wrote Chang and Tesher.

“Total debt rose by roughly $850 billion to $6.6 trillion last year, dwarfing the 1% cash growth ($17 billion).”

And the really bad news is that banks all across the country are starting to tighten credit to businesses.

In other words, they are beginning to become much more reluctant to loan money to businesses because debts are going bad at such an alarming rate.

When the flow of credit to the business community starts to slow down, it is inevitable that the overall economy slows down as well.  It is just basic economics.  So the deterioration of the U.S. economy that we have witnessed so far is just the beginning of a process that is going to take quite a while to play out.

And let us not forget that most of the rest of the world is already is much worse shape than we are.  Most global financial markets are officially in bear market territory right now, and some nations are already experiencing full-blown economic depression.

Now that the early chapters of the “next crisis” are here, most American families find themselves ill-equipped to deal with another major downturn.  In fact, USA Today is reporting that approximately two-thirds of the country is currently living paycheck to paycheck…

Two-thirds of Americans would have difficulty coming up with the money to cover a $1,000 emergency, according to an exclusive poll, a signal that despite years after the Great Recession, Americans’ finances remain precarious as ever.

These difficulties span all incomes, according to the poll conducted by The Associated Press-NORC Center for Public Affairs Research. Three-quarters of people in households making less than $50,000 a year and two-thirds of those making between $50,000 and $100,000 would have difficulty coming up with $1,000 to cover an unexpected bill.

What are these people going to do when they lose their jobs or their businesses go under?

If you have any doubt that the U.S. economy is already in recession mode, just look at this chart over and over.

For months, I have been warning that the same patterns that immediately preceded previous recessions were happening once again, and this rise in debt delinquencies is another striking example of this phenomenon.

This stuff isn’t complicated.  Anyone that is willing to be honest with themselves should be able to see it.  As a society, we have been making very, very bad decisions for a very, very long period of time, and what we are watching unfold right now are the inevitable consequences of those decisions.

*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*

Watch Venezuela, Because Food Shortages, Looting And Economic Collapse Are Coming To America Too

Venezuela Economic CollapseThe full-blown economic collapse that is happening in Venezuela right now is a preview of what Americans will be experiencing in the not too distant future.  Just a few years ago, most Venezuelans could never have imagined that food shortages would become so severe that people would literally hunt dogs and cats for food.  But as you will see below, this is now taking place.  Sadly, this is what the endgame of socialism looks like.  When an all-powerful government is elevated far above all other institutions in society and radical leftists are given the keys to the kingdom, this is the result.  Food shortages, looting and rampant violent crime have all become part of daily life in Venezuela, and we all need to watch as this unfolds very carefully, because similar scenarios will soon be playing out all over the planet.

The funny thing is that Venezuela actually has more “wealth” than most countries in the world.  According to the CIA, Venezuela actually has more proven oil reserves than anyone else on the globe – including Saudi Arabia.

So how did such a wealthy nation find itself plunged into full-blown economic collapse so rapidly, and could a similar thing happen to us?

The president of Venezuela has declared a 60 day state of emergency in a desperate attempt to restore order, but most people don’t anticipate that it will do much good.  Social order continues to unravel as the economy systematically implodes.  The Venezuelan economy shrunk by 5.7 percent last year, and it is being projected that it will contract by another 8 percent in 2016.  Meanwhile, inflation is raging wildly out of control.  According to the IMF, the official inflation rate in Venezuela will be somewhere around 720 percent this year and 2,200 percent next year.

If people are able to get their hands on some money, they immediately rush out to the stores to use it before the prices go up again.  This has created devastating shortages of food, basic supplies and medicine.

Electricity is also in short supply, and a two day workweek has been imposed on many government employees in a desperate attempt to save power.  Violent crime is seemingly everywhere, and most law-abiding Venezuelans lock themselves in their homes at night as a result.

Much of the crime is being perpetrated by the mafia and the gangs, but sometimes it is just normal people looking for food.  Desperate people do desperate things, and according to the Guardian there have been “107 episodes of looting or attempted looting in the first quarter of 2016″…

Crowds of people in Venezuela have stolen flour, chicken and even underwear this week as looting increases across the country in the wake of shortages of many basic products. Many people have adopted the habit of getting up in the dead of night to spend hours in long lines in front of supermarkets. But as more end up empty-handed and black market prices soar, plundering is rising in Venezuela, an Opec nation that was already one of the world’s most violent countries.

There is no official data, but the Venezuelan Observatory for Social Conflict, a rights group, have reported 107 episodes of looting or attempted looting in the first quarter of 2016. Videos of crowds breaking into shops, swarming on to trucks or fighting over products frequently make the rounds on social media, though footage is often hard to confirm.

One example of this looting took place on May 11th.  Thousands of hungry people stormed Maracay Wholesale Market in central Venezuela, and the police seemed powerless to stop them

“They took milk, pasta, flour, oil, and milk powder. There were 5,000 people,”one witness told Venezuela outlet El Estímulo.

People from across the entire state came to the supermarket because there were rumors that some products not found anywhere else would be sold there.

“There were 250 people for each National Guard officer… lots of people and few soldiers. At least one officer was beat up because he tried to stop the crowd,” another source told El Estímulo.

You can see some rough footage of this incident right here

It is important to remember that this was not an isolated incident.  As people have become hungrier and hungrier, there have been reports of looting at “pharmacies, shopping malls, supermarkets, and food delivery trucks“.  During some of these episodes there have actually been people chanting “we are hungry”.

Other Venezuelans have resorted to digging in dumpsters and trash cans for food.  This many seem detestable to many Americans, but when you are desperately hungry you may be surprised at what you are willing to do.

And as I mentioned above, some Venezuelans and now actually hunting dogs and cats for food

Ramón Muchacho, Mayor of Chacao in Caracas, said the streets of the capital of Venezuela are filled with people killing animals for food.

Through Twitter, Muchacho reported that in Venezuela, it is a “painful reality” that people “hunt cats, dogs and pigeons” to ease their hunger.

You may be tempted to dismiss these people as “barbarians”, but someday Americans will be doing the exact same thing.

There has been a breakdown of basic social services in Venezuela as well.  Acute shortages of drugs and medical supplies are having absolutely tragic results.  When I read the following from the New York Times, this crisis in Venezuela become much more real to me…

By morning, three newborns were already dead.

The day had begun with the usual hazards: chronic shortages of antibiotics, intravenous solutions, even food. Then a blackout swept over the city, shutting down the respirators in the maternity ward.

Doctors kept ailing infants alive by pumping air into their lungs by hand for hours. By nightfall, four more newborns had died.

So once again I ask – how did such a thing happen to such a wealthy nation?

Here is Business Insider’s explanation…

The real culprit is chavismo, the ruling philosophy named for Chavez and carried forward by Maduro, and its truly breathtaking propensity for mismanagement (the government plowed state money arbitrarily into foolish investments); institutional destruction (as Chavez and then Maduro became more authoritarian and crippled the country’s democratic institutions); nonsense policy-making (like price and currency controls); and plain thievery (as corruption has proliferated among unaccountable officials and their friends and families).

Are not the same things happening here?

The U.S. government is mismanaging our money too.  During Barack Obama’s eight years in the White House, the U.S. national debt has risen by more than eight trillion dollars.  We waste money in some of the most bizarre ways imaginable, and at this point our national debt is nearly the double the size it was just prior to the last major financial crisis.

Institutional destruction is also a legacy of the Obama regime.  With each passing day, our society resembles the Republic that our founders originally intended less and less, and it resembles socialist dictatorships more and more.  We may as well not even have a Constitution anymore, because at this point nobody really follows it.

The third thing that Business Insider mentioned, “nonsense policy-making”, is a perfect description of what has been going on in Washington D.C. these days.  Perhaps that is why Congress only has a 12.8 percent approval rating right now.

Lastly, thievery and corruption are also out of control in our nation too.  The elite and special interest groups spend massive amounts of money to get their favorites into office, and in turn those politicians shower their good friends with money and favors.  It is a very sick relationship, but that is how our system now works.

We are sitting on the largest mountain of debt in the history of the planet, and our debt-fueled prosperity is completely dependent on the rest of the world lending us gigantic amounts of money at ridiculously low interest rates and continuing to use our increasingly shaky currency which we are debasing at a staggering pace.

We consume far more than we produce, and unlike Venezuela we aren’t sitting on hundreds of billions of barrels of oil.  The amount of “real wealth” that we actually have does not justify our current standard of living.  The only way that we are able to live the way that we do is by stealing consumption from the future.  One study has found that our debt level is the highest that it has been since the Great Depression of the 1930s, and yet we continue to race down this road to economic oblivion without even thinking twice about it.

What you sow is what you will reap.

And just like Venezuela, America will ultimately reap a very bitter harvest.

The U.S. Economy Officially Joins The Global Economic Slowdown – 1st Quarter GDP Comes In At 0.5%

Slow Down - Public DomainEven the government is admitting that the U.S. economy is slowing down.  On Thursday, we learned that U.S. GDP grew at just a 0.5 percent annual rate during the first quarter of 2016.  This was lower than analysts were anticipating, and it marks the third time in a row that the GDP number has declined compared to the previous quarter.  In other words, GDP growth has been declining for close to a year now, and this lines up perfectly with what I have been saying about how the second half of last year was a turning point that plunged us into the early chapters of a brand new economic crisis.  And as you will see below, the official GDP number is highly manipulated, and the way that it is calculated has been changed numerous times over the years.  So the bad number that is being reported by the government is actually the best case scenario.

Of course many of the “experts” being quoted by the mainstream media are saying that this is just a temporary blip and that good times for the U.S. economy are right around the corner.  For instance, check out this quote from Reuters

“The economy essentially stalled in the first quarter, but that doesn’t mean it is faltering,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Some of the restraints to growth are dissipating. Growth is likely to accelerate going forward.”

We have been told this same story for years, but the “acceleration” has never materialized.  In fact, Barack Obama is poised to become the only president in U.S. history to never have a single year when the economy grew by more than 3 percent during his presidency.

That is a statistic that is hard to believe, but it is true.

In addition, Louis Woodhill has pointed out that the average rate of U.S. economic growth during the Obama years will be the fourth worst in recorded history…

Assuming 2.67% RGDP growth for 2016, Obama will leave office having produced an average of 1.55% growth. This would place his presidency fourth from the bottom of the list of 39*, above only those of Herbert Hoover (-5.65%), Andrew Johnson (-0.70%) and Theodore Roosevelt (1.41%)

So does anyone out there still believe that there has been an “Obama recovery”?

We also need to add another layer to our analysis.  By now, everyone should realize that the official GDP number is highly manipulated, and the way that GDP is calculated has been changed many, many times over the years.

For example, here is Peter Schiff commenting on changes that were made in 2013

The latest example of this was revealed earlier this week when the Bureau of Economic Analysis (BEA) announced new methods of calculating Gross Domestic Product (GDP) that will immediately make the economy “bigger’ than it used to be. The changes focus heavily on how money spent on research and development (R&D) and the production of “intangible” assets like movies, music, and television programs will be accounted for. Declaring such expenditures to be “investments” will immediately increase U.S. GDP by about three percent. Such an upgrade would immediately increase the theoretic size of the U.S economy and may well lead to the perception of faster growth. In reality these smoke and mirror alterations are no different from changes made to the inflation and unemployment yardsticks that for years have convinced Americans that the economy is better than it actually is.

And the following originally comes from a Bloomberg article which discussed changes that were made in 2015

The way some parts of U.S. gross domestic product are calculated are about to change in the wake of the debate over persistently depressed first-quarter growth.

In a blog post published Friday, the Bureau of Economic Analysis listed a series of alterations it will make in seasonally adjusting data used to calculate economic growth. The changes will be implemented with the release of the initial second-quarter GDP estimate on July 30, the BEA said.

One of the changes that was made last year was intended to artificially boost GDP growth numbers for the first quarter of each year.

So without that artificial boost, what would the real number for the first quarter of 2016 look like?

John Williams of shadowstats.com tracks what the official government numbers would be if honest numbers were actually being used, and according to him U.S. GDP growth has been continuously negative since 2005.

But we certainly can’t have the press report those sorts of things.  If that were the case, then everyone would be talking about the “economic depression” that never seems to end.

Unfortunately, the truth is that we are in the midst of a long-term economic decline, and we can see evidence of this all around us.  For example, on Thursday we also learned that the rate of homeownership in the United States has fallen once again, and it is now hovering just 0.1 percent above the lowest level ever recorded in American history…

After gains in the second half of 2015, the homeownership rate fell to just 63.6 percent, seasonally adjusted, in the first quarter of this year, according to the U.S. Census Bureau. Homeownership hit a high of 69.4 percent in 2004, during one of the biggest housing booms in history. That was also when mortgage lending was arguably at its loosest level in history. The homeownership rate is now just one-tenth of 1 basis point higher than its all-time low in the second quarter of 2015.

For many more numbers that show that the U.S. economy has continued to decline, please see the following articles that I authored earlier this month…

#1 “Economy In Decline: Apple Reports Massive Revenue Decline As iPhone Sales Plummet Dramatically

#2 “In 1 Out Of Every 5 American Families, Nobody Has A Job

#3 “Stories Of Despair From The Forgotten People That The U.S. Economy Has Left Behind

#4 “47 Percent Of Americans Cannot Even Come Up With $400 To Cover An Emergency Room Visit

#5 “Corporations Are Defaulting On Their Debts Like It’s 2008 All Over Again

Now that U.S. GDP growth has been steadily dropping for three quarters in a row, hopefully people will wake up and begin to realize what is happening.

We are entering very hard times, so now is not the time to go out and buy fancy new toys or to go into lots of debt.

Rather, this is a time to tighten our belts, batten down the hatches and prepare for rough seas ahead.

Sadly, most people continue to have blind faith that our politicians and the central bankers will be able to perform some kind of miracle to save us from what is coming.

*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*

Helicopter Money: Global Central Banks Consider Distributing Money Directly To The People

Helicopters 2 - Public DomainShould central banks create money out of thin air and give it directly to governments and average citizens?  If you can believe it, this is now under serious consideration.  Since 2008, global central banks have cut interest rates 637 times, they have injected 12.3 trillion dollars into the global financial system through various quantitative easing programs, and we have seen an explosion of government debt unlike anything we have ever witnessed before.  But despite these unprecedented measures, the global economy is still deeply struggling.  This is particularly true in Japan, in South America, and in Europe.  In fact, there are 16 countries in Europe that are experiencing deflation right now.  In a desperate attempt to spur economic activity, central banks in Europe and in Japan are playing around with negative interest rates, and so far they seem to only have had a limited effect.

So as they rapidly run out of ammunition, global central bankers are now openly discussing something that might sound kind of crazy.  According to the Telegraph, central banks are becoming increasingly open to employing a tactic known as “helicopter money”…

Faced with political intransigence, central bankers are openly talking about the previously unthinkable: “helicopter money”.

A catch-all term, helicopter drops describe the process by which central banks can create money to transfer to the public or private sector to stimulate economic activity and spending.

Long considered one of the last policymaking taboos, debate around the merits of helicopter money has gained traction in recent weeks.

Do you understand what is being said there?

The idea is basically this – central banks would create money out of thin air and would just give it to national governments or ordinary citizens.

So who would decide who gets the money?

Well, they would.

If you are anything like me, this sounds very much like Pandora’s Box being opened.

But this just shows how much of a panic there is among central bankers right now.  They know that we are plunging into a new global economic crisis, and they are desperate to find something that will stop it.  And if that means printing giant gobs of money and dropping it from helicopters over the countryside, well then that is precisely what they are going to do.

In fact, the chief economist at the European Central Bank is quite adamant about the fact that the ECB can print money out of thin air and “distribute it to people” when the situation calls for it…

ECB chief Mario Draghi has refused to rule out the prospect, saying only that the bank had not yet “discussed” such matters due to their legal and accounting complexity. This week, his chief economist Peter Praet went further in hinting that helicopter drops were part of the ECB’s toolbox.

All central banks can do it“, said Praet. “You can issue currency and you distribute it to people. The question is, if and when is it opportune to make recourse to that sort of instrument“.

Apparently memories of the Weimar Republic must have faded over in Europe, because this sounds very much like what they tried to do.  I don’t know why anyone would ever want to risk going down that road again.

Here in the United States, the Federal Reserve is not openly talking about “helicopter money” just yet, but that is only because the stock market is doing okay for the moment.

Most Americans don’t realize this, but the primary reason why stocks are doing better in the U.S. than in the rest of the world is because of stock buybacks.  According to Wolf Richter, corporations spent more than half a trillion dollars buying back their own stocks over the past 12 months…

During the November-January period, 378 of the S&P 500 companies bought back their own shares, according to FactSet. Total buybacks in the quarter rose 5.2% from a year ago, to $136.6 billion. Over the trailing 12 months (TTM), buybacks totaled $568.9 billion.

When corporations buy back their own stocks, that means that they are slowly liquidating themselves.  Instead of pouring money into new good ideas, they are just returning money to investors.  This is not how a healthy economy should work.

But corporate executives love stock buybacks, because it increases the value of their stock options.  And big investors love them too, because they love to see the value of their stock holdings rise.

So we will continue to see big corporations cannibalize themselves, but there are a couple of reasons why this is starting to slow down.

Number one, corporate profits are starting to fall steadily as the economy slows down, so there will be less income to plow into these stock buybacks.

Number two, many corporations have used debt to fund buybacks, but now it is getting tougher for corporations to get new funding as corporate defaults rise.

As stock buybacks slow, this is going to put downward pressure on the market, and we will eventually catch up with the rest of the planet.  At this point, many experts are still calling for stocks to fall by another 40, 50 or 60 percent from current levels.  For example, the following comes from John Hussman

From a long-term investment standpoint, the stock market remains obscenely overvalued, with the most historically-reliable measures we identify presently consistent with zero 10-12 year S&P 500 nominal total returns, and negative expected real returns on both horizons.

From a cyclical standpoint, I continue to expect that the completion of the current market cycle will likely take the S&P 500 down by about 40-55% from present levels; an outcome that would not be an outlier or worst-case scenario, but instead a rather run-of-the-mill cycle completion from present valuations. If you are a historically-informed investor who is optimistic enough to reject the idea that the financial markets are forever doomed to extreme valuations and dismal long-term returns, you should be rooting for this cycle to be completed. If you are a passive investor, you should at least align your current exposure with your investment horizon and your tolerance for cyclical risk, which we expect to be similar to what we anticipated in 2000-2002 and 2007-2009.

When the S&P 500 does fall that much eventually, the Federal Reserve will respond with emergency measures.

So yes, we may see “helicopter money” employed in Japan and in Europe first, but we will see it here someday too.

I know that a lot of people out there are feeling pretty good about things for the moment because U.S. stocks have rebounded quite a bit lately.  But remember, the fundamental economic numbers just continue to get even worse.  Just today we learned that existing home sales in the United States had fallen by the most in six years.  That is definitely not a sign that things are “getting better”, and I keep trying to warn people that tumultuous times are dead ahead.

And if global central bankers did not agree with me, they would not be talking about the need for “helicopter money” and other emergency measures.

The Collapse Of Italy’s Banks Threatens To Plunge The European Financial System Into Chaos

Italy Flag Map - Public DomainThe Italian banking system is a “leaning tower” that truly could completely collapse at literally any moment.  And as Italy’s banks begin to go down like dominoes, it is going to set off financial panic all over Europe unlike anything we have ever seen before.  I wrote about the troubles in Italy back in January, but since that time the crisis has escalated.  At this point, Italian banking stocks have declined a whopping 28 percent since the beginning of 2016, and when you look at some of the biggest Italian banks the numbers become even more frightening.  On Monday, shares of Monte dei Paschi were down 4.7 percent, and they have now plummeted 56 percent since the start of the year.  Shares of Carige were down 8 percent, and they have now plunged a total of 58 percent since the start of the year.  This is what a financial crisis looks like, and just like we are seeing in South America, the problems in Italy appear to be significantly accelerating.

So what makes Italy so important?

Well, we all saw how difficult it was for the rest of Europe to come up with a plan to rescue Greece.  But Greece is relatively small – they only have the 44th largest economy in the world.

The Italian economy is far larger.  Italy has the 8th largest economy in the world, and their government debt to GDP ratio is currently sitting at about 132 percent.

There is no way that Europe has the resources or the ability to handle a full meltdown of the Italian financial system.  Unfortunately, that is precisely what is happening.  Italian banks are absolutely drowning in non-performing loans, and as Jeffrey Moore has noted, this potentially represents “the greatest threat to the world’s already burdened financial system”…

Shares of Italy’s largest financial institutions have plummeted in the opening months of 2016 as piles of bad debt on their balance sheets become too high to ignore.  Amid all of the risks facing EU members in 2016, the risk of contagion from Italy’s troubled banks poses the greatest threat to the world’s already burdened financial system.

At the core of the issue is the concerning level of Non-Performing Loans (NPL’s) on banks’ books, with estimates ranging from 17% to 21% of total lending.  This amounts to approximately €200 billion of NPL’s, or 12% of Italy’s GDP.  Moreover, in some cases, bad loans make up an alarming 30% of individual banks’ balance sheets.

Things have already gotten so bad that the European Central Bank is now monitoring liquidity levels at Monte dei Paschi and Carige on a daily basis.  The following comes from Reuters

The European Central Bank is checking liquidity levels at a number of Italian banks, including Banca Carige and Monte dei Paschi di Siena , on a daily basis, two sources close to the matter said on Monday.

Italian banking shares have fallen sharply since the start of the year amid market concerns about some 360 billion euros of bad loans on their books and weak capital levels.

The ECB has been putting pressure on several Italian banks to improve their capital position. The regulator can decide to monitor liquidity levels at any bank it supervises on a weekly or daily basis if it has any concern about deposits or funding.

 

A run on the big Italian banks has already begun.  Italians have already been quietly pulling billions of euros out of the banking system, and if these banks continue to crumble this “stealth run” could quickly become a stampede.

And of course panic in Italy would quickly spread to other financially troubled members of the eurozone such as Spain, Portugal, Greece and France.  Here is some additional analysis from Jeffrey Moore

A deteriorating financial crisis in Italy could risk repercussions across the EU exponentially greater than those spurred by Greece.  The ripple effects of market turmoil and the potential for dangerous precedents being set by EU authorities in panicked response to that turmoil, could ignite yet more latent financial vulnerabilities in fragile EU members such as Spain and Portugal.

Unfortunately, most Americans are completely blinded to what is going on in the rest of the world because stocks in the U.S. have had a really good run for the past couple of weeks.  Headlines are declaring that the risk of a new recession “has passed” and that the crisis “is over”.  Meanwhile, South America is plunging into a full-blown depression, the Italian banking system is melting down, global manufacturing numbers are the worst that we have seen since the last recession, and global trade is absolutely imploding.

Other than that, things are pretty good.

Seriously, it is absolutely critical that we don’t allow ourselves to be fooled by every little wave of momentum in the stock market.

It is a fact that sales and profits for U.S. corporations are declining.  This is a trend that began all the way back in mid-2014 and that has accelerated during the early stages of 2016.  The following comes from Wolf Richter

Total US business sales – not just sales by S&P 500 companies but also sales by small caps and all other businesses, even those that are not publicly traded – peaked in July 2014 at $1.365 trillion, according to the Census Bureau. By December 2015, total business sales were down 4.6% from that peak. A bad 18 months for sales! They’re back where they’d first been in January 2013!

Sales by S&P 500 companies dropped 3.8% in 2015, according to FactSet, the worst year since the Financial Crisis.

I know that a lot of people have been eagerly anticipating a complete and total global economic collapse for a long time, and many of them just want to “get it over with”.

Well, the truth is that nobody should want to see what is coming.  Personally, I rejoice for every extra day, week or month we are given.  Every extra day is another day to prepare, and every extra day is another day to enjoy the extremely comfortable standard of living that our debt-fueled prosperity has produced for us.

Most Americans have absolutely no idea how spoiled we really are.  Even just fifty years ago, life was so much harder in this country.  If we had to go back and live the way that Americans did 100 or 150 years ago, there are very few of us that would be able to successfully do that.

So enjoy the remaining days of debt-fueled prosperity while you still can, because great change is coming, and it is going to be extremely bitter for most of the population.

The Economic Collapse Of South America Is Well Underway

Earth - Our World - Public DomainThe 7th largest economy on the entire planet is completely imploding.  I have written previously about the economic depression that is plaguing Brazil, but since my last article it has gotten much, much worse.  During 2015, Brazil’s economy shrank by 3.8 percent, but for the most recent quarter the decline was 5.89 percent on a year over year basis.  Unemployment is rising rapidly, the inflation rate is up over 10 percent, and Brazilian currency has lost 24 percent of its value compared to the U.S. dollar over the past 12 months.

At this point, Brazil is already experiencing its longest economic downturn since the Great Depression of the 1930s, and things are getting worse for ordinary Brazilians every single day.  The following comes from CNN

But with Brazil plunging into its worst recession in over two decades — hopes for a brighter future are fading. The Brazilian economy shrank 3.8% in 2015, according to government data published Thursday. That’s the biggest annual drop since 1990 and the country is in its longest recession since the 1930s.

I have never seen anything like this,” said Alves, 24, as he stood on his balcony overlooking Rocinha, a massive lower middle class neighborhood or favela in Rio de Janeiro where he grew up. “My parents would tell me about hard times, but today it is really tough. Prices are going up every day.”

So how did this happen?

Well, there are a couple of factors that are really hurting South American economies.

Number one, during the “boom years” governments and businesses in South America absolutely gorged on debt.  Unfortunately, many of those loans were denominated in U.S. dollars, and now that the U.S. dollar has appreciated greatly against local South American currencies it is taking far more of those local currencies to service and pay back those debts.

Number two, collapsing prices for oil and other commodities have been absolutely brutal for South American economies.  They rely very heavily on exporting commodities to the rest of the world, and so at the same time their debt problems are exploding they are getting a lot less money for the oil and industrial commodities that they are trying to sell to North America, Asia and Europe.

I want you to pay close attention to the following chart and analysis from Zero Hedge.  As you can see, the economic problems in Brazil appear to be greatly accelerating…

“The Brazilian economic downturn took a real turn for the worse in February,” according to Markit’s Composite PMI, which collapsed to record lows at 39.0. Despite a slightly less bad than expected GDP print this morning (still down a record 5.89% YoY), hope was quickly extinguished as PMIs showed economic activity continuing to contract at a record pace, job losses accelerating, and manufacturing’s collapse accelerating. As Market sums up, “With the global economy also showing signs of slowing, which will impact on external demand, it looks as if the downturn is set to continue to run its course in the coming months.”

GDP was a disaster (but better than expected)

Brazil GDP - Zero Hedge

And of course Brazil is not the only South American economy that is a basket case right now.  In fact, things in Venezuela are far worse.  In 2015, the Venezuelan economy shrunk by 10 percent, and the official rate of inflation was a staggering 181 percent.

Could you imagine living in an economy with a 181 percent inflation rate?

As prices have escalated out of control, citizens have attempted to hoard basic supplies in advance, and this has resulted in food shortages that are absolutely frightening

Cardboard signs on the door warning of “No bread” have become increasingly common at Venezuelan bakeries.

Venezuela gets 96 percent of its foreign currency from oil exports, and as crude prices have plunged, so have the country’s imports — among them wheat.

The leftist government of President Nicolas Maduro has tightly controlled access to hard currency, and this has affected imports ranging from medicine to toilet paper. Now it is seriously affecting imports of wheat, which Venezuela does not grow.

Add to this the soaring inflation rate — 181 percent in 2015, the world’s highest — and you see why customers are mainly interested in buying basic food items such as bread.

Here in the United States, there are still people who doubt that an economic crisis is happening.

But in Venezuela and Brazil there is no debate.

Unfortunately, what is happening in Venezuela and Brazil is also slowly starting to happen to most of the rest of the planet as well.  It is just that they are a little farther down the road.  Economic and financial bubbles are bursting all over the world, and I like how author Vikram Mansharamani described this phenomenon during a recent interview with CNBC

Deflationary tides are lapping the shores of countries across the world and financial bubbles are set to burst everywhere, Vikram Mansharamani, a lecturer at Yale University, told CNBC on Thursday.

I think it all started with the China investment bubble that has burst and that brought with it commodities and that pushed deflation around the world and those ripples are landing on the shore of countries literally everywhere,” the high-profile author and academic said at the Global Financial Markets Forum in Abu Dhabi.

And of course the evidence of what Mansharamani was talking about is all around us.

Just this week we found out that Chinese state industries plan to lay off five to six million workers, U.S. factory orders have now fallen for 15 months in a row, and the corporate default rate in the United States has now risen above where it was at when Lehman Brothers collapsed.

There are some people that would like to point to the fact that stocks have bounced back a bit over the past couple of weeks as evidence that the crisis is over.

If they want to believe that, they should go ahead and believe that.

Unfortunately, the truth is that the hard economic numbers that are coming in from all over the world tell us very clearly that global economic activity is slowing down significantly.

A new global recession has already begun, and the pain that is already being felt all over the planet is just the beginning of what is coming.

Plunging Manufacturing Numbers Mean That It Is Time To Hit The Panic Button For The Global Economy

Panic Button On Keyboard - Public DomainWe haven’t seen numbers like these since the last global recession.  I recently wrote about how global trade is imploding all over the planet, and the same thing is true when it comes to manufacturing.  We just learned that manufacturing in China has now been contracting for seven months in a row, and as you will see below, U.S. manufacturing is facing “its toughest period since the global financial crisis”.  Yes, global stocks have bounced back a bit after experiencing dramatic declines during January and the first part of February, and this is something that investors are very happy about.  But that does not mean that the crisis is over.  All bear markets have their ups and downs, and this one will not be any different.  Meanwhile, the cold, hard economic numbers that keep coming in are absolutely screaming that a new global recession is here.

Just consider what is happening in China.  Manufacturing activity continues to implode, and factories are shedding jobs at the fastest pace since the last financial crisis

Chinese manufacturing suffered a seventh straight month of contraction in February.

China’s official Purchasing Managers’ Index (PMI) stood at 49.0 in February, down from the previous month’s reading of 49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.

A private survey also showed China’s factories shed jobs at the fastest rate in seven years in February, raising doubts about the government’s ability to reduce industry overcapacity this year without triggering a sharp jump in unemployment.

For years, the expansion of the Chinese economy has helped fuel global economic growth.  But now things have shifted dramatically.

At this point, things are already so bad that the Chinese government is admitting that millions of workers are going to lose their jobs at state-controlled industries in China…

China’s premier told visiting U.S. Treasury Secretary Jacob Lew on Monday his government is pressing ahead with painful reforms to shrink bloated coal and steel industries that are a drag on its slowing economy and ruled out devaluing its currency as a short-cut to boosting exports.

Premier Li Keqiang’s comments to Lew on Monday were in line with a joint declaration by financial officials from the Group of 20 biggest rich and developing economies who met over the weekend in Shanghai. They pledged to avoid devaluations to boost sagging trade and urged governments to speed up reforms to boost slowing global growth.

Across all state-controlled industries, as many as six million workers could be out of a job, with almost two million in the coal industry alone.

But it isn’t just China.  Right now manufacturing activity is slowing down literally all over the planet, and this is exactly what we would expect to see if a new global recession had begun.  The following chart and analysis come from Zero Hedge

As the below table shows, 28 regions have reported so far. Seven saw improvements in their manufacturing sectors in February, twenty recorded a weakening, and India was unchanged. This means that over 70% of the world saw manufacturing sentiment deteriorate in February compared to January.

February Manufacturing Numbers - Zero Hedge

In terms of actual expansion, there were 21 countries in positive territory and 7 in negative. In particular, Greece moved from neutral to contraction territory, while Taiwan dropped below breakeven from expansion.

Unfortunately, most Americans don’t really pay much attention to what is going on in the rest of the world.  For most of us, what really matters is what is happening inside the good ole USA.

And of course the news is not good.  There were more signs of trouble for U.S. manufacturing in the February numbers, and this continues a trend that stretches back well into last year.  The following is what Chris Williamson, the chief economist at Markit, had to say about these numbers

“The February data add to signs of distress in the US manufacturing economy. Production and order book growth continues to worsen, led by falling exports. Jobs are being added at a slower pace and output prices are dropping at a rate not seen since mid-2012.

“The deterioration in the manufacturing sector’s performance since mid-2014 has broadly tracked the dollar’s rise, which makes US goods more expensive in overseas markets and leads US consumers to favour cheaper imported goods.

“With other headwinds including the downturn in the oil sector, heightened uncertainty due to financial market volatility, global growth worries and growing concerns about the presidential election, it’s no surprise that the manufacturing sector is facing its toughest period since the global financial crisis.

Over the past couple of decades, the U.S. economy has lost tens of thousands of manufacturing facilities.  We desperately need a manufacturing renaissance – not another manufacturing decline.

As good paying manufacturing jobs have been shipped overseas, they have been replaced by low paying service jobs.  As a result, the middle class is shrinking and the ranks of the poor are exploding.

It is hard to believe, but today more than 45 million Americans are on food stamps, and a significant percentage of those individuals actually have jobs.  They are called “the working poor”, and it is becoming a major crisis in this nation.

And no matter what Obama may say, unemployment remains a major problem in the United States as well.  At this point, unemployment rates in 36 states are higher than they were just before the last recession hit in 2008.

Of course a lot of people are going to look at this article and will point to the stock market gains of the past couple of weeks as evidence that “things are getting better”.  It is this kind of clueless approach that is keeping the American people from coming together on solutions to our problems.

The truth is that the United States has been experiencing economic decline for decades.  Our economic infrastructure has been gutted, the middle class is steadily deteriorating, and we have amassed the biggest pile of debt in the history of the world.

Anyone that believes that things are “just fine” is in a massive state of denial.  Consuming far more wealth than we produce is not a formula for a sustainable economy, and it is just a matter of time before we find this out the hard way.

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